Case Study Questions –Paramount Communications Inc. 1993-
Why a paramount is a takeover target?
Several Strategic Reasons
- Cost reduction: through combinations of similar business and economy of scales
- Sales increase: a) cross-promotions of each company’s brand and utilization of each company’s channels, and b) cooperation in international businesses.
2. Which of the two firms (Viacom or QVC) would make a better fit with Paramount?
-Viacom: Overlap in the business creates synergies regarding cost and revenue. However, cannibalisation may happen in the near future.
-QVC: Small rooms for synergies (cost reductions may be limited to non-business section.). Volatility may high regarding the realisation of
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5. What is Paramount worth to Viacom?
- Theme park (cross-selling)
- Film Library/Film Distribution Business
6. What is Paramount worth to QVC?
- New business opportunities in Entertainment
- Film Library/Film Distribution Business
7. Compare your valuation with Smith Barney’s. What assumptions do you have to make to get the terminal value EBITDA multiples used by Smith Barney. Is there any benefit of their method relative to FCF method?
Smith Barney is using EBITDA of 14 to 16X. Since EBITDA multiple tends to revert to a certain level over the year, we need to assume that the market will keep pricing the company at the same level of 1993.
The merits of EBITDA multiples:
-They don’t need to assume the perpetual growth rate which is hard to calibrate but has substantial impact on pricing.
-They can ignore the capital structure change
-Easier to understand (it is “market consensus”)
8. What doe 30% premium suggest? Is it reasonable?
30% of premium over the market price may be reasonable given;
a) control premium
b) the nature of takeover (it can be considered as “Insider Trading”, and to avoid litigation by shareholders, an acquirer may need to pay premium)
c) consideration of synergies through a takeover.
9. How should Redstone proceed? What price should he offer? Should the offer be a cash offer, a stock offer, or
Do you think that either firm can attain a sustainable competitive advantage in this business?
Choosing two profitable stocks amongst a myriad of potential alternatives is a daunting task to say the least. In order to narrow my choices from thousands to two, I examined several aspects of companies I was interested in. Among these were, company overview, alpha and beta ratings, price ratios, price charts, and company headlines. After evaluating this information, I chose Intuit INC (INTU) listed on the NASDAQ and Johnson and Johnson (JNJ) listed on the NYSE.
In the beginning, there was no real stock market. However stock exchanges did take place in smaller groups and corporations. This all took place during the 1700's where stocks were already around for a long time before that but it wasn't really popular in the United States. Stocks originally started as auctions where traders called out names of companies and the shares available. There was a auction that took place and the shares went to the highest bidders.
Overall, Viacom seems like a much more viable target, for the main reason of having much greater similarities with Paramount as compared to QVC.
For the corporation that has acquired another company, merged with another company, or been acquired by another company, evaluate the strategy that led to the merger or acquisition to determine whether or not this merger or acquisition was a wise choice. Justify your opinion.
There are many different ways to save money and there are different things to save for. A savings plan for an immediate want is apparently different than a savings strategy for retirement. One may choose to select stocks, bonds, or mutual funds for a savings strategy, however, my personal choice is to invest in bonds first, then mutual funds.
Shareholder’s equity would be lower than that shown in 1982 ($318,000) because the company has to pay off interest and principal for many loans. There will be little money left for shareholder’s equity.
3. At what price would you recommend that Rosetta Stone shares be sold?Rosetta Stone: Pricing the 2009 IPO
5. Should the company seriously consider any other options besides doing a spin-off or issuing targeted stock?
4. What offer would you make in an effort to gain the support of the Robertson family and the great majority of the stockholders, while improving the long-term trend of Monmouth’s earnings per share over the next five years?
Used Lower side of EBITDA Multiples: Dillon report does not justify that why they should take lower side of multiples. Even though JP Morgan valuation proposed such low multiples, but failed to indicate how it arrived at this multiple value.
1. What are the strengths and weaknesses of Verizon, MCI, and Qwest? Where are the synergies in the proposed combination?
The New York Stock Exchange traces its origin back 200 years. Centuries of growth and innovation the NYSE remains the world’s foremost securities marketplace. Over the years its commitment to investors has been unwavering and its persistent application of the latest technology has allowed it to maintain a level of market quality and service that is unparalleled. The NYSE has grown to become the global marketplace of today.
Which of the following is NOT normally regarded as being a barrier to hostile takeovers? (Points : 5)
The most important is Enterprise value/EBIDTA. Helps to estimate the offer of KKR, inc and gives the answer to Question N4. (See the following table)